MEDIA

June 9, 2000

Arbitration Waiver, Preclusion Of Defense Testimony, Double Jeopardy

Published in: New York Law Journal | volume 223
Written by: Peter R. Schlam and Harvey M. Stone

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Issues covered include the following: waiver of arbitration, preclusion of defense testimony, double jeopardy, and the Copyright Act. Discussions in greater detail follow:

Waiver of Arbitration

In Allied Sanitation, Inc. v. Waste Management Holdings, Inc., 00 Misc. 21 (EDNY, May 23, 2000), Judge Frederic Block denied petitioners’ application to stay arbitration or any other alternative dispute resolution process arising from a class action against Waste Management for misrepresenting its financial statements in connection with acquiring the class members’ assets in exchange for the company’s stock. The decision deals with an issue of first impression – the conduct that a party may engage in while opposing class certification without risking waiver of arbitration.

Robert Mowbray commenced the class action in July 1998 against Waste Management in the District of Massachusetts following the company’s press release admitting that its income had been overstated by hundreds of millions of dollars during the prior eight years. Mowbray based his lawsuit on breach of warranty because Waste Management had expressly warranted the truth and accuracy of its financial statements in its contract to purchase assets from Mowbray. In April 1999 the district court granted Mowbray’s motion for partial summary judgment on liability.

In October 1999 the Massachusetts court certified a class including all persons who engaged in transactions from January 1990 to Feb. 24, 1998 where Waste Management acquired assets in exchange for its common stock, furnished financial statements and expressly warranted in the contract the truth and accuracy of those financial statements.

Waste Management vigorously contested expanded class action certification, particularly the inclusion of Resource Group as a certified class member. Following class certification Mowbray sought summary judgment on liability for the entire class. Waste Management appealed class certification, which was affirmed in March 2000, and also served a notice of demand for Alternative Dispute Resolution (ADR) on Resource Group under their contract. Waste Management additionally moved to amend the class certification order to exclude all class members who had contractually agreed to ADR and arbitration. At the same time Waste Management opposed Mowbray’s motion for summary judgment on behalf of the certified class and served interrogatories and requests for production of documents. Resource Group moved to stay arbitration and opposed Waste Management’s motion to modify the class on the ground that Waste Management had waived its right to arbitration, or alternatively, that the arbitration clause had been fraudulently procured. The district court ruled that under the arbitration clause New York, rather than Massachusetts, was the proper venue for all issues relating to arbitration.

In February 2000 Resource Group commenced the present action in the Eastern District of New York. Waste Management moved to dismiss. Judge Block rejected Waste Management’s argument that the case was not ripe for decision. The requirement of an ADR negotiation process, the court noted, did not preclude litigation challenging the arbitration clause’s enforceability.

Judge Block then addressed the issue of waiver. Citing the strong federal policy favoring arbitration, the court determined that Waste Management’s actions in opposing the initial summary judgment motion, opposing class certification, invoking the arbitration clause two months after class certification and opposing the second summary judgment motion did not constitute waiver of its contractual right to arbitrate. Judge Block determined that there was no prejudice to Resource Group because it was not a class member until after decision on the first summary judgment motion and did not seek an active role in the class action litigation. Indeed, Resource Group did not even appear in the litigation until after Waste Management demanded arbitration. As the court observed, moreover, opposition to class action certification did not implicate the merits of the underlying dispute.

Judge Block found Waste Management’s stated desire to negotiate a settlement with Resource Group, a major Waste Management shareholder, to be a sensible approach. Consistent with Waste Management’s desire for settlement, the court added, was its decision to refrain from raising the arbitration clause as a defense to certifying Resource Group as a class member.

The court found fault only with Waste Management’s two-month delay in seeking arbitration. Otherwise, Waste Management had not led the Resource Group to expend large amounts of money and had not profited from its delay by obtaining discovery that it would have been unable to obtain in arbitration.

Preclusion of Defense Testimony

In Jones v. Stinson, Superintendent, Great Meadow Correctional Facility, 98 CV 3719 (EDNY, May 11, 2000), Judge David G. Trager, granting a writ of habeas corpus, held that the state trial court’s preclusion of certain testimony by petitioner prevented a fair presentation of the defense case.

Petitioner Jones was arrested in Queens County after selling to an undercover officer three red-capped vials containing a white powdery substance. The police recovered the purchase money from Jones as well as three orange-capped vials also containing white powder. Laboratory tests showed that each of the red-capped vials contained a detectable amount of cocaine, while none of the orange-capped vials contained traces of any controlled substance. Jones was charged with sale of a controlled substance in the third degree, under N.Y. Penal Law 220.39(1) (McKinney 2000), which carries no minimum weight requirement.

Jones contended at trial that he never intended to sell the officer cocaine. According to Jones, just before his arrest, he had purchased six vials of crack and smoked all six at home. He then refilled the vials with baking soda and went outside to sell the vials as if they contained cocaine, so that he could then buy more crack. Jones contended that, unknown to him, three of the vials (those with the red caps) must have still contained some traces of crack when he refilled them with baking soda. Thus, he argued, he did not "knowingly" sell cocaine, as required by 220.39(1).

During pretrial argument, defense counsel asserted that, during the four preceding years, Jones had been arrested three other times for selling what appeared to be controlled substances to undercover officers. On each of these prior occasions, counsel stated, the charges against Jones were dismissed after chemical analysis failed to reveal any controlled substance. When the prosecutor noted that Jones’s rap sheet did not reflect those three arrests, defense counsel suggested that this was because the underlying files in the three cases had been sealed following the dismissals.

During Jones’s trial testimony, defense counsel asked him whether he had sold baking soda on the street before. Jones answered that he had. But when counsel asked Jones whether he had ever before been arrested for selling baking soda, the trial judge sustained the prosecutor’s objection. Judge Trager held that this was the one error, among many alleged in the habeas petition, that warranted granting of the writ.

Upon inquiry by Judge Trager, the Queens District Attorney verified that, during the four-year period, Jones had been arrested for selling narcotics at least twice, in December 1992 and June 1993; and that both charges had been dismissed, in the latter case because the substance sold tested negative and in the former for reasons still being investigated. Upon further inquiry by the court, the District Attorney ascertained that none of the tests routinely performed by the police lab can distinguish between crack cocaine and cocaine hydrochloride. Nor did the powder form of the substance sold dispositively indicate cocaine hydrochloride rather than crack.

Extensively reviewing the evidence at trial and the Appellate Division’s 3-2 split decision, Judge Trager held, first, that federal review of the merits of the claim was proper. The Appellate Division had commented in passing that defense counsel never precisely stated at trial that the judge’s ruling improperly interfered with the ability to present a defense. Judge Trager presumed, however, that the Appellate Division decision did not rest "on an adequate and independent state ground," since the decision "fairly appears to rest primarily on the merits of Jones’s federal claim" and did not "clearly and expressly" rely on some state procedural default by Jones. Slip op. 33.

As Judge Trager also concluded, petitioner was entitled to habeas relief because the excluded testimony could have created a reasonable doubt as to guilt that did not otherwise exist. The error therefore necessarily had a "substantial and injurious effect or influence in determining the verdict." The Appellate Division’s decision also "involved an unreasonable application of clearly established federal law." Slip op. 33-42.

In Judge Trager’s view, evidence of Jones’s past practice of selling baking soda in lieu of cocaine should have been admitted, not to prove "propensity," but to show a common plan or scheme, presence of a mistake, or lack of intent to sell cocaine. The court stated: "Evidence of the prior arrests and dismissals would have corroborated Jones’s defense of having intended to sell baking soda and thus was directly relevant to the only contested issue in the case. …" Slip op. 48. Given the record as a whole, the error was of constitutional dimension.

Respondent was ordered to release Jones unless a new trial was commenced within 60 days.

Double Jeopardy

In Aparicio v. Artuz, Superintendent, Green Haven Correctional Facility, 97 CV 2183 (EDNY, May 25, 2000), Judge Jack B. Weinstein granted a writ of habeas corpus to a petitioner who had been convicted of both robbery in the first degree, in violation of N.Y. Penal Law 160.15(4), and criminal possession of a firearm in the second degree, in violation of N.Y. Penal Law 265.03. Judge Weinstein vacated the firearm conviction because it was a lesser included offense of the robbery conviction, and the failure of both trial and appellate counsel to argue double jeopardy amounted to ineffective assistance.

On Jan. 29, 1991, someone attempted to rob a subway passenger and then shoot a police officer on a Brooklyn subway train. Shortly afterwards, at 6:00 a.m. the same morning, one Ramos was warming up his car when he was approached by a man with a gun. The gunman asked Ramos if he had any money, told him to get out of the car, then jumped into the car and drove off.

Petitioner Aparicio was charged with attempted murder and assault as to the shots fired at the officer; attempted robbery in the first degree regarding the subway passenger; robbery in the first degree regarding Ramos; and criminal possession of a weapon in the second degree. Petitioner was convicted only on the counts alleging the robbery of Ramos and possession of a weapon.

As Judge Weinstein noted, any defendant who violates the first-degree robbery statute, 160.15(4), also violates the weapon possession statute, 265.03. And, under double jeopardy principles, the guilty verdict here on the greater count (robbery) required a dismissal of the lesser included offense (possession).

Judge Weinstein rejected the state’s argument that double jeopardy did not bar the conviction for gun possession because that conviction could have been based on the subway incident. This theory, the court stated, appeared to be a "post hoc rationalization" to avoid double jeopardy:

No indication of this temporal distinction was drawn by the state until its response to the present petition. The indictment’s description of the second degree weapons charge merely states that the crime occurred on Jan. 29, 1991 … The jury charge also failed to provide a specific time for this offense. Slip op. 8.

No reasonable strategy existed, the court found, for counsel’s failure to seek a jury instruction pinpointing which time frame, the subway incident or the car theft, related to the possession count. Had the jury been told that the gun possession allegedly occurred on the subway, the jury "quite likely" would not have convicted since it failed to convict petitioner of any offenses relating to the subway events. Slip op. 9.

Copyright Act

In Peker v. Masters Collection, 98 CV 672 (EDNY, May 15, 2000), Judge Eugene H. Nickerson granted plaintiffs’ motion for summary judgment as to liability for copyright infringement, denied defendant’s motion for summary judgment and granted plaintiffs’ motion to amend the complaint to add infringement claims for two additional works.

Plaintiffs, Elya and Katrina Peker, an artist and his wife appearing pro se, registered the copyright for three of Elya’s paintings. Defendant Masters purchases poster prints of paintings, adds paint to the poster and resells them as framed oil painting replicas.

Elya had entered into a licensing agreement with Galaxy of Graphics, Ltd., granting Galaxy the right to make and sell posters of some of his paintings for which Elya received an advance and royalties. At prices ranging from $4.50 to $7.50 per poster, Masters purchased from Galaxy some 30 poster prints reproducing several of Elya’s paintings. Masters converted the posters into "oil paintings," which it sold at prices ranging from $189 to $322.

Because plaintiffs were appearing pro se, Judge Nickerson interpreted their papers liberally. In support of his copyright infringement claims, Elya submitted a certificate of copyright registration as prima facie evidence of valid copyright ownership. Thus, the court stated, the only remaining issue was whether Masters had copied Elya’s painting in violation of his right to reproduce the copyrighted work and his right to prepare derivative pieces based on that work. In determining that Masters had violated Elya’s copyright by reproducing his work, the court found that, through the posters, Masters had access to Elya’s painting and used a copy in its process. Further, the replicas created by Masters were "substantially similar" to the copyrighted paintings. Indeed, the court found the copying "blatant." As Judge Nickerson also noted, Masters’ description of its replication process in its court papers was misleading, because it failed to mention that its process involved applying paint in brush strokes, stating only that it transferred an image from a poster to a canvas, applied resin and resold the product in a museum quality frame. Moreover, Masters’ description was inconsistent with its brochures, which referred to the recreation of brushwork and attention to detail making its replicas "indistinguishable from the original oil painting masterpiece."

In short, Masters was not simply reselling a poster, but selling a painting which it characterized as indistinguishable from the original. Thus, the court differentiated Masters’ actions from those of a purchaser who resold a poster in a frame or displayed the original image in a different medium. Here, Masters sought to imitate the original work. Judge Nickerson saw no merit in Masters’ defense that it had used one poster per replica and paid for each poster. Elya received only about 50 cents per poster, the court noted, while Masters received about $300 per replica. In addition, the licensing agreement with Galaxy contemplated only posters, not the recreation of Elya’s oil paintings. As Judge Nickerson pointed out, the "first sale" doctrine allows resale, but not copying.

Judge Nickerson concluded, however, that Masters’ replicas were not "derivative works" within the meaning of the Copyright Act because they expressly sought to copy the originals and did not contain any originality that would warrant an independent copyright. Similarly, Elya had not stated a claim under the Visual Artists Rights Act because Masters used posters of his work, which were excluded from the statute. Slip op. 18-19.

Finally, Judge Nickerson allowed plaintiffs to amend their complaint to allege copyright violations as to two other paintings and recommended that plaintiffs obtain counsel for the rest of the litigation.

Peter R. Schlam and Harvey M. Stone are partners at Schlam Stone & Dolan.  Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.
[Reproduced with permission from New York Law Journal Volume 223, Friday, June 9, 2000.  Copyright 2000 ALM Properties, Inc.  All rights reserved.]